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Ninth Circuit Rules ERISA Plans Obligated to Notify Participants, When Asked, of Potential Amendments Under "Serious Consideration"

August 25, 2000

The U.S. Court of Appeals for the Ninth Circuit, in San Francisco has ruled that employers have a fiduciary duty to respond to employee inquiries regarding potential changes to employee benefit plans covered by the Employee Retirement Income Security Act ("ERISA") by providing complete and truthful information about those potential changes to such plans that are under "serious consideration" at the time of the employee's inquiry. Bins v. Exxon Co. U.S.A., No. 98-55662, 2000 WL 1126387 (9th Cir. Aug. 10, 2000). Significantly, however, the Court also ruled that, absent a specific employee inquiry, employers do not have an affirmative duty to inform employees of potential changes to ERISA plans that are under "serious consideration." Moreover, even after an employee asks whether any changes to ERISA plans are contemplated, the employer is under no obligation to update its response to the employee's question as circumstances change, unless the employer has expressly agreed to do so.

The facts of the case

Bins heard rumors in the months preceding his retirement that his employer, Exxon Company U.S.A. ("Exxon"), was considering offering a more generous package of retirement benefits than those provided for under the terms of its retirement plan. On several occasions, Bins asked his supervisors, two human resources representatives and an Exxon attorney to confirm the rumors: each of these individuals truthfully responded that they were unaware of plans to modify the company's existing retirement plan.

Less than two weeks after Bins retired, Exxon publicly announced a new retirement package which, as rumored, included a lump-sum buyout. Bins filed suit, alleging that Exxon had breached its fiduciary duty under ERISA by failing to notify him that it was considering offering an enhanced retirement incentive at the time he retired.

Prior decisions in the case

The district court granted Exxon's motion for summary judgment, applying the "serious consideration" test first announced by the Third Circuit in Fischer v. Philadelphia Electric Co., 96 F.3d 1533 (3rd Cir. 1996) ("Fischer II"). Under this test, an employer has a fiduciary duty to respond accurately and straightforwardly to employee inquiries regarding any potential amendments to an ERISA plan that are under "serious consideration" at the time of the employee's inquiry. The district court found that Exxon was not "seriously considering" amending its retirement plan when Bins made his final inquiry to the company on this subject, and that Exxon was under no obligation to update its response thereafter, absent a renewed request for information by Bins.

Bins appealed, and in an August 1999 decision a three-judge panel of the Ninth Circuit held that Exxon had a fiduciary duty to inform plan participants of any plan amendments under serious consideration, regardless of whether the participants asked for this information. The full Ninth Circuit subsequently vacated this decision and granted Exxon's petition for en banc review (review by the full 12-member Court).

The full Court adopts and discusses the "serious consideration" test

The full Court, reversing and remanding the case, agreed with the district court that the "serious consideration" test articulated by the Third Circuit in Fischer II was the "proper tool" for determining whether a plan sponsor has a duty to inform plan participants of potential plan amendments. The Court then examined the facts of the case in light of the three factors Fischer II instructs courts to consider in deciding whether an amendment is under serious consideration: namely, whether (1) there is a specific proposal; (2) being discussed for implementation; (3) by senior management with the authority to implement such a proposal.

With respect to the first factor, the Court explained that a "specific proposal" need only be "sufficiently concrete to support consideration by senior management for the purpose of implementation." Because several proposed amendments to Exxon's retirement plan had been prepared and forwarded to Exxon's senior management before the amendment was finally adopted, the Court instructed the district court on remand to determine whether or not the various proposals were sufficiently concrete at the time of Bins's inquiries to meet the "specific proposal" prong of the Fischer II "serious consideration" test.

As for the second factor, the Court confirmed that a proposal is being discussed for purposes of implementation "when the subject turns to the practicalities of implementation," and left it to the district court on remand to determine whether Exxon's senior management had begun to discuss the practicalities of implementation of any specific proposed retirement plan amendment before Bins asked about the existence of any such proposed amendment.

Finally, with regard to the third factor, the Court explained that "senior management with authority to implement the proposal" refers to the members of senior management charged with the responsibility to administer or alter employee benefit plans. Where, as in Bins, a large organization is comprised of a number of discrete divisions, courts must look to the degree of autonomy exercised by the division in question (e.g., in Bins, Exxon Company U.S.A., a division of Exxon Corporation) to determine whether "senior management" as used in the third prong of the Fischer II "serious consideration" test refers to senior management of the relevant division, or of its corporate parent. In Bins, this issue was left to the district court to resolve on remand.

Court concludes that absent an employee's inquiry, employer has no fiduciary duty to disclose plan amendments prior to their adoption

The Court rejected Bins's argument that Exxon had a duty to notify him if it was seriously considering any plan amendment after he inquired about possible amendments, and to notify all plan participants of any such amendments under serious consideration, even in the absence of any employee inquiries on that subject. The Court explained that,

[i]f an employee makes an inquiry (or inquiries) about prospective plan changes, the employer's fiduciary duty is to respond completely and truthfully about the present state of affairs -- that is, whether serious consideration has begun. The employer's duty does not extend to employees who do not inquire about potential plan changes, however. We hold that, absent such an inquiry, an ERISA fiduciary does not have an affirmative duty prior to final approval and general dissemination of plan changes to volunteer information to employees who have not specifically alerted the fiduciary to the fact that such information is material to them…. [I]n the absence of a promise to update an employee, an ERISA fiduciary's duty does not extend beyond giving complete and accurate answers to the employee's questions.

On remand, the district court was instructed to determine whether any Exxon representatives had promised to let Bins know if anything changed with respect to the rumored retirement plan amendment.

Conclusion

In light of the Bins decision, employers should be certain to respond accurately when employees ask about possible benefit plan modifications that are under serious consideration at the time the question is posed. At the same time, employers should avoid promising to keep employees up to date on these matters in the absence of specific inquiries, or the subsequent failure to adhere to this promise could constitute a breach of the employer's fiduciary duties under ERISA.